My first brokerage account was with a full service broker, in those days it was 3% to buy and 3% to sell, a 6% roundtrip. It helped to buy in round lots of 100 shares and if you bought in a high enough dollar amount, you could get commissions down to 2% each way. Most mutual funds, as they are today, are loaded and front end sales commissions of 8 1/2 percent on a stock mutual fund was not uncommon. So this explains my aversion to trading, my preference for buying cheaper stocks, and my preference for longer holding periods. Plus my brokers taught me about Value investing, many Value stocks paid dividends.

We take the internet for granted nowadays, we have access to research and real time day with a few clicks of a mouse. When I started, the newspaper had daily stock quotes and daily mutual fund prices. If you wanted real-time information or access to research, you had to call your broker. For financial information on companies, you could consult their annual reports but it was easier and faster to look it up on Value Line at your local library. There just wasn't the access to information. The internet didn't really become a thing until about the mid-1990's. The net really revolutionized investing for the individual investor, it gave ordinary people access to information almost instantaneously and at your fingertips.

Another thing to remember was that the discount brokers didn't really start to get going until the 1980's and the era of do-it-yourself investing and no-load mutual funds didn't really get going until the late 1980's and lasted through the 1990's. As I said, after the 2000 crash, former do-it-yourself investors ran to financial advisors and loaded mutual funds. In the "old" days, if you wanted to invest, most people would call a brokerage firm and set up an account with an "expert" stockbroker.

My preference for dividends came from my desire to get paid while I waited for my stocks to pop. Dividends contributed additional funds to invest and helped cover the cost of trades. So you can see where I picked up my habits.

I often advise investors to put down on paper their Investment Policy Statement. This was last updated on November 13, 2013 and I wanted to see how well I have stuck to my strategies. Of course, a lot has happened in four years. I will make some comments to update how I am doing today.

Note that I am following the format of the Morningstar Worksheet.

Nedsaid Investment Policy Worksheet

Executive Summary

What are the current assets of my portfolio today? Nedsaid: Obviously, I don't want to broadcast the size of my retirement portfolio to the entire world but I have been amazed at how much my portfolio has grown.
How much do I plan to invest each month? $1,000. 17% Salary goes to the 403b plan at work, 3% match, and 5% contribution to 401a Service Plan. I contribute to a Traditional IRA and a Roth IRA as I am able.

Nedsaid: I was laid off in October 2014, and I have continued to contribute to retirement accounts but obviously at a much lower level. I have paid out of pocket my own health insurance since then except for nine months, and that has taken a big chunk out of my finances. I have gained a greater appreciation for those who have difficulty saving. I am thankful that I mostly locked in my housing costs when I purchased my condo some years ago. The property taxes and association payments have gone up but I own cheaper than I could rent. Used cars are also more expensive than they used to be.

During this time, I have kept afloat with seasonal tax work, contract work, and unemployment compensation. It has given me an appreciation for the financial struggles that many people are facing. I have recently taken a new job which does have some nice future potential. I should get certification fairly soon that will add to my earning power, a certification that I had not before believed I was eligible to achieve.

How many years will I be investing? 12 years.

Nedsaid: I am 58 now, and hope to retire at age 65 but might keep working as long as someone is willing to employ me and as long as my health holds up.

How much do I expect the portfolio to return after inflation? 4%.

Nedsaid: This might more realistically be 2% or 3% real growth. So far, so good.

How much of a loss can I accept? 35%.
What is my target asset allocation? 60% stocks/40% fixed income. International Stocks are 30% of my stocks. I want approximately 40% of my stocks in mid-caps and small-caps. I tilt my portfolio towards value and small stocks. My bonds are mainly investment grade intermediate term bonds and TIPS. TIPS are 10-20% and International bonds are 10% of my bond allocation.
What are the benchmarks for my portfolio? Blended index of Wilshire 5000, MSCI-EAFE, and US Bond Index.

Nedsaid: At age 58, I am still at 67% stocks and 33% bonds and cash. My Mid/Small-Caps are now 32% of my stocks, so I am below my target of 40%. International Stocks are about 28% of my stocks. TIPS are 14% of my bonds and International Bonds are 7% of my fixed income portfolio. In part because of very low interest rates, I have kept my stock allocation above my 60% target.

Investment Objectives

What is my financial goal? Retirement.
How long will I need to be funding this goal? 10 years.
How much will this goal cost me every year? $12,000.Nedsaid: Obviously, I am not putting $12,000 a year towards retirement now. Fortunately, I did heavy duty saving earlier in my life.

Investment Philosophy

What is important to me as an investor? Consistency. Low Cost. I do not chase hot performing stocks, sectors, or funds. I expect honesty from company management or fund management. I am value oriented. I love dividends. I am a growth and income investor.

What is my philosophy about risk? My number one risk as an investor is inflation. My portfolio is largely built around defeating inflation. Volatility in the markets is a secondary risk. I deal with market volatility by investing a portion of my portfolio in bonds and in volatile non-correlating asset classes. I want my investments to be “plain vanilla”. They need to be understandable. I am adverse to complicated investments. Sometimes, I have to just wait out market volatility when diversification doesn’t work as well as I had hoped.

What is my philosophy about core and non-core investments? I build a portfolio around index funds, core stocks. Investment grade, intermediate term bonds are at the core of my fixed income investments. I invest in managed funds as well as indexes. I rarely sell. I believe in having volatile non-correlating asset classes in my portfolio. I call this having a “tiger in my tank.” These include REITs, Emerging Markets, US Small Cap Value, and International Mid-Small Cap. I believe that these asset classes will add return and perhaps decrease the volatility of my portfolio. Having been burned by speculative investments in the past, I keep them at less than 1 or 2% of my portfolio.

What is my philosophy about diversification? I want to diversify across performance factors using asset classes as a tool. These include the equity, value, small-cap, and momentum premiums. This belief is based on academic research. I want to be broadly diversified in US Stocks, International Stocks, US Bonds, and International Bonds. I want to be invested all over the world. I overweight towards value and mid-cap and small-cap stocks to attempt to capture excess returns.

What is my philosophy about rebalancing? I have a very relaxed attitude about rebalancing. I rebalance only when my asset allocation strays greatly from my target asset allocation. My asset allocation bands are as much as 10%. I take into account the valuations of asset classes and if I can look for an opportune time to rebalance to take advantage of bargains. I do not see this as a mechanical approach. I see rebalancing as a way of reducing risk but not as a way of enhancing returns. At my age, I am likely to rebalance only from stocks into bonds. I do not anticipate rebalancing from bonds to stocks.

What is my philosophy about trading? The less trading the better. I sell only when an investment gets overvalued, the reason I bought it no longer exists, or when an investment has disappointed over a long period of time and its problems are unlikely to be fixed. I have found that buy decisions are easy but sell decisions difficult. Often what I sell does better than the investment I buy to replace it!!

What is my philosophy about costs? Low cost. The core of my investments are stock and bond index funds. I love to hold individual stocks for long periods of time. The holding period for individual stocks should be five years or greater. Low costs are particularly important for fixed income investing.

Nedsaid: I have pretty well stuck to my investment philosophies. I did make a change in my rebalancing strategies, I have been in a program of mild rebalancing from stocks to bonds since July 2013. Plus, I have been pretty well shamed by forum members into being more diligent about rebalancing.

What are my expectations about returns? For stocks, I expect a 7% return, which represents 5% earnings growth and 2% dividend yield. For bonds, I expect a 3% return, which is what a diversified bond portfolio yields now.

Nedsaid: My expectations are now probably 5% to 6% for US Stocks, 8% to 10% for International Stocks, and 2% for bonds.

What is my philosophy about taxes? Keep taxes as low as possible. My retirement accounts are invested for maximum return. I allocate my taxable and tax deferred accounts the same.

Investment Selection Criteria

What are the investment selection criteria for my mutual funds? Reasonable cost, strict adherence to stated investment policy, depth of organization (analysts) behind fund management, and long term performance record. I prefer team management to dependence on a super star manager. I look for the quality of the organization more than the fund itself. I am looking less to managed funds and more towards indexed funds.

I will buy load funds only if the organization and management of the fund are excellent and the ongoing expense ratios are reasonable. I am willing to pay a load to compensate an Investment Advisor I am working with. I will pay a load on the same money only once.

The bulk of my mutual funds are no-load funds and index funds.

What are the investment criteria for my stocks? I am looking for value stocks that pay a dividend. I am suspicious if the dividend yield greatly exceeds the market average or the average for its industry. I am looking for quality companies that are out of favor or have temporary problems. I am not interested in “cigar butt” investing. I want to buy the quality cigars when they go on sale.

Monitoring Procedures

How often will I monitor my portfolio? I monitor daily. I should not do this, but I can’t help myself.

How will I determine how well my individual investments are doing? For funds, comparison to their benchmarks. I subscribe to Morningstar and monitor my investments there. I monitor my individual stocks but don’t sell unless the stock gets overvalued, the reason I bought it no longer exists, or if the company has problems that are unlikely to be overcome.

How will I determine how well my overall portfolio is doing? I will compare my portfolio against a blended index. I can get a good estimate using the returns of the Vanguard Index Funds: Total US Stock Market, Total International Stock Market, and Total US Bond Market.

Notes

I like REITS, TIPS, and Small Value to help beat inflation. I own International Bonds as a currency hedge.

I have been using ETFs to get into asset classes that are hard to get into with managed funds. For example, small-cap value funds are often closed to new investors.

I have deviated from my 60/40 preferred asset allocation because of my belief that bonds are overvalued after a 30-year bull market and do not represent value. I am buying bonds now only to keep my stock allocation from getting over 70 percent and to buffer the volatility of stocks.

I also am of the belief that US REITs are richly valued. Investors seeking yield have bid them up. I own REITs because they have similar returns to stocks with little correlation to stocks. I believe this asset class no longer represents value.

Nedsaid: I still believe four years later that US REITs no longer represent value. I have trimmed back on them somewhat but still hold those.

Good to see that I have mostly stuck to my guns and that I have not deviated much from my investment philosophies. Pretty much, my weightings to International Stocks have increased a bit and I have gotten a bit more excited about individual stocks the last couple years but I haven't changed things much at all. I am disappointed that my allocation to Mid/Small-Caps is down from about 38% to 32% today. I have also allowed my allocation to International Bonds to drift lower as well.

Total I did another wave of rebalancing from stocks to bonds. The program of mild rebalancing from stocks to bonds that I have been in since July 2013, I have been doing this for about 4 1/2 years now. I sold about 1% of my portfolio today, it should take my portfolio's share of stocks down from 67% down to 66%. Doesn't sound like a lot but the dollar amounts are getting to be fairly large. Most all of the rebalancing was done with my active funds, I barely trimmed three index funds. This was all done with US Stocks, I have left my International Stocks alone.

It seems that all I have been doing lately is hitting the "sell" button. The US Stock Market has been very strong and I would be utterly irresponsible if I didn't rebalance. This is also a baby step towards reducing portfolio risk, I have sold down from 69% stocks over time to 66% stocks today. I am 58 years old now and I have been putting off and putting off de-risking. Vanguard, Fidelity, and T. Rowe Price all recommend about 64% stocks for a Target Date 2025 portfolio. Time for me to get going.

My estimate is that I would be at 76% stocks had I let things ride. All this rebalancing has brought me to 66%. For me, it is quite a bit of money.

Another benefit, is that this will increase the proportion of International Stocks as a part of my equity allocation. Finally getting around to increasing my International allocation as well.

Note that Pfizer has done well this year but still trails Total Market this year. I have mentioned
this often as one of my "Four Horsemen of Underperformance." I guess this horseman is underperforming this year but not by very much.

Stock Stylebox for Retirement Portfolio
26 20 21
05 06 06
06 05 04

US Stocks 47%
Foreign Stocks 19%
Bonds 31%
Cash 3%
Other 1%

66% Stocks, 34% Bonds and Cash, 1% Other.

Average mutual fund expense ratio: 0.49%

Again, no dramatic changes. As I mentioned above, I did yet another round of rebalancing, selling US Stocks equal to 1% of my retirement portfolio. The proceeds were put into US Bonds and TIPS. I have worked my stocks down to 65.92% of my portfolio: 46.92% in US Stocks and 19.00% in International Stocks. International Stocks are now at 28.82% of my equities.

My brokerage IRA has been accumulating cash so I made another buy of the Vanguard Total Bond Market ETF. I am continuing to buy bonds here, part of my program of de-risking. BND is yielding about 2 1/2% here, not terrible. It looks to my untrained eye that Bond Yields have crept up a bit.

What I really wanted to do was buy some stock with the funds but I have been telling myself that I need to start de-risking my portfolio. Sort of like the annual promise to go on that diet. Somehow it never seemed to happen. I have been getting more serious about it in recent years but have made only modest progress.

Ouch. I underperformed the blended index. I returned 15.01% vs. 16.39% for my blended benchmark. Another benchmark would be Fidelity Freedom 2025 K which my former company contributed to in lieu of a pension, that fund returned 16.97% and has a mix of 37% US Stocks, 26% International Stocks, 36% Bonds and Cash, and 1% other.

What accounted for my disappointing performance?

My Individual Stocks returned 19.67% compared to 21.15% for US Total Stock Market. Part of this was the "Nedsaid effect", I sold 2/3 of my position in Applied Materials to buy Gilead Sciences, Coke, and Ford. Applied Materials has outperformed all three that I bought to replace. I have very modest gains in Gilead, Coke, and Ford while Applied Materials continued to zoom. I did the prudent thing and it bit me. I added a bit to AIG which did little this year. Oh well.

The individual stocks are contained within an IRA Brokerage Account that is 85% stocks. That account containes my Individual Stocks, Load Funds, and ETFs. This account is heavily weighted towards Value and Small Caps which both trailed the US Total Stock Market. This account returned 15.4% for 2017. The blended index for this account would have returned 19.34%. This account has 72% US Stocks, 13% International Stocks, and 15% Bonds and Cash. The expense ratio for the account is 0.45% which includes expense ratios for the ETFs and Funds and the trading commissions. This account was the big culprit, the underperformance accounted in this account caused my retirement as a whole to underperform by 0.91% or about 77% of my underperformance. The account is 27.43% of my retirement.

A former workplace savings plan which is mostly index funds and contains cheap managed funds
has an expense ratio of 0.21. This account returned 16.1%. Did everything right here and still trailed a bit. This account is 43% US Stocks/24% International Stocks/33% bonds. The blended index returned 16.89%. Despite doing things right, I still trailed by 0.79%. Fee drag was minimal. No real tilts here except a bit to Small-Cap so this is a head scratcher. One source of drag is a GNMA fund I hold here that returned 1.71% vs 3.55% for Total Bond. This account is 29% of my retirement.

My IRA at American Century performed admirably but contributed a bit to the drag. The blended return of a 38% US Stock/22% International Stock/40% Bond index would have been 15.53%. I calculated my returns on this account at 15.25%. Expense ratio is 0.79% so fee drag here was the culprit. This account is 31.2% of my retirement.

I have a small annuity that is 51% US Stocks, 12% Foreign Stocks, and 37% bonds and cash. This account despite an estimated fee drag of 1.4% or so returned an admirable 14.98%.

There are a couple of other small workplace savings plans which are roughly 65% stocks/35% bond portfolios and they performed at 15.95% and 16.47%. The latter performed better because it has more International Stocks. These are indexed and have very low fees.

A Small Roth IRA returned 14.22%. It is mostly in a World Allocation Fund but is Value oriented. Value was a drag this year.

On the bond side, my Cash Balance Retirement Pension returned 2.06% this year, which was a drag
compared to 3.59% returned by Total Bond Market. Last I checked, this was 4.3% of my retirement portfolio. TIPS are 5.22% of my portfolio or 15.7% of my bonds. One TIPS fund returned 3.08% and the indexed version returned 3.04%. I also hold GNMA funds, one returned 1.71% and the other returned 1.21%; these represent 2.93% of my portfolio. So I had bonds representing 12.5% of my portfolio that underperformed.

Last edited by nedsaid on Mon Jan 01, 2018 5:33 pm, edited 5 times in total.

So what happened in 2017? Why did my performance at 15.01% trail the blended 47% US Stocks/19% International Stocks/34% Bonds blended index which returned 16.39%.

First is fee drag, my estimated fund and ETF fund ratios, trading commissions, and annuity expenses came out to 0.474%. My blended 47/19/34 index had expenses of 0.046%. Fee drag is 0.428% a year.

Second would be the Value/Small Tilts in my IRA Brokerage Account. The total fee drag is about the same as in retirement accounts as a whole. I calculate the "factor drag" on Small/Value bets that didn't work to be 0.91%. This 0.91% applies to my entire retirement account but the source was all from this one brokerage IRA account. I will estimate that the entire "factor drag" on my retirement accounts to be 1.00%.

In addition, I had a Cash Balance Retirement account, GNMA's, and TIPS that underperformed the broad bond market.

You actually did good for a blended portfolio that
is highly diversified (blended portfolio 15.01%).
(stock market funds, bonds, international stocks, individual stocks).

For comparison (I' am 100% stocks).
VHDYX = 16.37%
401K = 22.05%
(401K is 2% of the value of VHDYX) (Just in it for the match).

Basically 15.01% vs. 16.37% for a 100% dividend portfolio.
I project my dividends next year at approx. $8500. However,
your much more diversified than I' am. (Ying/Yang).
You did good in my book!

What I am doing here is "The Year in Review." Look at what went right and what went wrong. Try to see what the elements of my return are. It appears that what happened is that small/value tilting didn't work this year. The drag really showed up in my IRA Brokerage Account, where most of my Small/Value tilts reside.

If you are trying to capture factors, there most often will be fee drag, particularly if you use an advisor. Even with specially designed factor funds, these tend to be more expensive than the broad indexes. In my case, fee drag was a secondary issue compared to "factor" drag. I accept higher fees in the hope of capturing excess returns from the factors. In 2017, I experienced the double whammy of fee drag and factor drag. Normally, factors are supposed to outperform, right?

My former workplace savings plan showed drag but much of it was from a Ginnie Mae fund that underperformed Total Bond by quite a bit. I suspect what is happening here is that the managers are shortening up on the maturities. The Fidelity GNMA has a duration of 3.76 compared to 6.12 for Total Bond. Thus yields will be lower for Fidelity GNMA.

The good folks at American Century did better than I had feared. Two of my bulwark funds, Heritage and Value have hit on tough times. Their International Funds are going gangbusters this year though. Their Quantitative Funds (optimized indexing) are trailing the benchmarks. They contributed a bit to my underperformance but much less than what I had expected. They did better against the blended benchmark that what my former workplace savings plan at Fidelity did.

So pretty much, I did pretty good. Compared to the tough 3 fund portfolio benchmark, I trailed. I am comparing to a tough but fair standard.

I would say with your AA 66/34 you did good. You compared very favorably
to the Life Strategy Funds. Going forward in a "flat to down market" you might
out perform the Life Strategy Fund's going into the future (who knows for sure).
I like your AA, I would not "derisk" to much. You still have 42 years to go.
At 7% money doubles in 10 years. You could still get another 2 easy doubles.
The next double could be when your 68 years old.

Thank you for letting me analyze & give you my opinions. I enjoy the process.
Your right in the ballpark & doing good. Congrat's I' am pretty impressed.
Your doing better than you think...DCA like crazy before you retire!
Try to work your "fee's drag" down.

The Janitor Next Door... "He piecemealed his portfolio together over time to
reduce the risk & then sat on it for decades"...Pretty smart guy.

Nedsaid: I like that you get the concept of benchmarking. And yes, I have used Vanguard LifeStrategy Moderate Growth as a portfolio to compare my own with.

Thanks for reading this thread. Probably some people think I am an egomaniac giving reports about myself and my portfolio. It actually is for me as much as it is for any interested readers. This has given me an opportunity to put my thoughts in writing and to on an ongoing basis evaluate my portfolio. This exercise has been a big learning experience for me. Think of it as a living portfolio laboratory or as the ultimate investing case study.

Again, I hope people pick up upon the analytical tools and methods I am using. The Morningstar X-Ray and Portfolio Visualizer were a great revelation to me and a great tool for analysis. This is the stuff that financial advisors do for their clients.

I would say with your AA 66/34 you did good. You compared very favorably
to the Life Strategy Funds. Going forward in a "flat to down market" you might
out perform the Life Strategy Fund's going into the future (who knows for sure).
I like your AA, I would not "derisk" to much. You still have 42 years to go.
At 7% money doubles in 10 years. You could still get another 2 easy doubles.
The next double could be when your 68 years old.

Nedsaid: Well, I didn't do badly but I am disappointed. People can see that I am not a superstar investor right now. On the other hand, we are in a Large Growth stock market. The FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have been doing particularly well. Value oriented investors tend to avoid these type of stocks, expectations for them are sky-high. When I posted the top 25 stocks in my portfolio as shown by the Stock Intersection feature of Morningstar X-Ray, you could see how far down the list the FAANG stocks were. I just don't chase the hot stuff. If I am Small/Value tilted, I shouldn't be surprised to be underperforming in this market. The worm will turn and Value will be back.

Thank you for letting me analyze & give you my opinions. I enjoy the process.
Your right in the ballpark & doing good. Congrat's I' am pretty impressed.
Your doing better than you think...DCA like crazy before you retire!
Try to work your "fee's drag" down.

Nedsaid: Thank you for reading my posts and commenting on them. You are right, compounding will work to my benefit, even in retirement. I have amassed a good sized portfolio while working in the not-for-profit sector and not making big money. Took frugality and careful investing to do it.

I am still thinking about getting this all whipped into shape for retirement. Still learning.

The Janitor Next Door... "He piecemealed his portfolio together over time to
reduce the risk & then sat on it for decades"...Pretty smart guy.

Thanks for writing up this year-end analysis. Yes, US small-cap value did not do as well in 2017 as other equities and it was a drag on performance in 2017. But in 2016, it was absolutely stellar, so much so that SCV got ahead of itself and took a breather in 2017.

With the change in the value of the US Dollar relative to other currencies, foreign small caps did well. Small-cap foreign VSS / VFSVX returned about 3% better than Total International, so a small-cap tilt in foreign helped.

The WisdomTree Emerging Markets Small-cap Dividend ETF was up 37.46% for 2017 according to Morningstar.com. You cannot get more tilted than that I think. However, long-term holders of DGS are looking at a less than 5% a year total return, so while DGS looks great the past 2 years DGS has not always enjoyed good returns.

Another simple benchmark with a 64/36 AA in 2017 is the Vanguard Target Retirement 2025 fund. This fund has no tilts, but does have 40% of equities in international. Performance was 15.94% in 2017.

But don't look at the Vanguard STAR fund VGSTX which is a 63/37 AA fund of actively-managed funds. Total return in 2017 was 18.33%.

Small-cap value tilters who want to make themselves feel good can use some DFA funds for benchmarks. For instance, DGSIX DFA Global Allocation 60/40 Portfolio Institutional Class has a 14.04% performance in 2017 which is 1% under VSMGX. But DGSIX outperformed VSMGX by 2% in 2016 and Vanguard STAR by 2.6% in 2016.

So what happened in 2017? Why did my performance at 15.01% trail the blended 47% US Stocks/19% International Stocks/34% Bonds blended index which returned 16.39%.

First is fee drag, my estimated fund and ETF fund ratios, trading commissions, and annuity expenses came out to 0.474%. My blended 47/19/34 index had expenses of 0.046%. Fee drag is 0.428% a year.

Second would be the Value/Small Tilts in my IRA Brokerage Account. The total fee drag is about the same as in retirement accounts as a whole. I calculate the "factor drag" on Small/Value bets that didn't work to be 0.91%. This 0.91% applies to my entire retirement account but the source was all from this one brokerage IRA account. I will estimate that the entire "factor drag" on my retirement accounts to be 1.00%.

In addition, I had a Cash Balance Retirement account, GNMA's, and TIPS that underperformed the broad bond market.

This is a very interesting summary of portfolio performance and Nedsaid Doo effects. Has this changed your planing for your future portfolio planning? Are you going to shift to a more "3 fund index approach" to simply things a bit?

Thanks for writing up this year-end analysis. Yes, US small-cap value did not do as well in 2017 as other equities and it was a drag on performance in 2017. But in 2016, it was absolutely stellar, so much so that SCV got ahead of itself and took a breather in 2017.

Nedsaid: Well, it went from the thrill of victory to the agony of defeat. When I calculated my returns and realized I was up 15% for the year, it was like all right! Party hardy! Then I calculated my "blended index" and realized my beautiful racehorse was an old nag! I felt like the infamous skier on the ABC Wide World of Sports that crashes during the intro. Agony of defeat, indeed.

The amazing thing is that most all of the underperformance was in my Brokerage IRA Account, where most of my Small/Value tilt resides. I work with a Broker on this account, I call him Broker #4. I guess I could blame him for all of this but the reality is that I make all the investment decisions myself. He proposes, I disposes. Half of the ideas are his and half are mine but I make the final decision on everything. So I have no one to blame but myself.

I didn't do this analysis in 2016, a great year for Value. Had I done it then you would have had to endure a self congratulatory essay. What I want to illustrate for investors is that investment trends come and go. One day you are the hero, the next day you are the goat. If you are a Value investor during a Growth phase of the market, you can expect to eat some humble pie as I am now.

By the way, I was glad to do this. Mostly did it for me but I let other people peek and hopefully it will be a learning experience for others. It took the better part of a Saturday to do all of this.

With the change in the value of the US Dollar relative to other currencies, foreign small caps did well. Small-cap foreign VSS / VFSVX returned about 3% better than Total International, so a small-cap tilt in foreign helped.

Nedsaid: It was interesting that back in 2008, when I bought the SPDR S&P International Small-Cap ETF, my broker was leery. Fresh from a Merriman seminar, I was not to be denied. Turned out this asset class languished for years after then and only turned hot this year. This ETF, American Century International Opportunities, and Fidelity International Small-Cap all had great years. And yes, currency was a big factor as the US Dollar weakened a bit.

The WisdomTree Emerging Markets Small-cap Dividend ETF was up 37.46% for 2017 according to Morningstar.com. You cannot get more tilted than that I think. However, long-term holders of DGS are looking at a less than 5% a year total return, so while DGS looks great the past 2 years DGS has not always enjoyed good returns.

Another simple benchmark with a 64/36 AA in 2017 is the Vanguard Target Retirement 2025 fund. This fund has no tilts, but does have 40% of equities in international. Performance was 15.94% in 2017.
Nedsaid: I have almost 29% of stocks in International and not 40% as Vanguard recommends, so I underperformed Vanguard Target Retirement 2025 too.

But don't look at the Vanguard STAR fund VGSTX which is a 63/37 AA fund of actively-managed funds. Total return in 2017 was 18.33%.

Nedsaid: This is why I don't reject active funds out of hand. It is interesting that the managed version of the Fidelity Freedom Funds do seem to beat the index version of the Freedom funds. I own the Fidelity Freedom 2025 K fund.

But yes, I went from elation to disappointment as I dug further into the numbers. Thought I had a great year but again, I trailed the blended benchmark.

Hopefully, all isn't lost. People can read this and learn how to analyze their own portfolios and try to figure out what went right and what went wrong. This is a real life case study.

Small-cap value tilters who want to make themselves feel good can use some DFA funds for benchmarks. For instance, DGSIX DFA Global Allocation 60/40 Portfolio Institutional Class has a 14.04% performance in 2017 which is 1% under VSMGX. But DGSIX outperformed VSMGX by 2% in 2016 and Vanguard STAR by 2.6% in 2016.

Nedsaid: [...]
Hopefully, all isn't lost. People can read this and learn how to analyze their own portfolios and try to figure out what went right and what went wrong. This is a real life case study.

Indeed, I've looked at my portfolio here at year-end many different ways. Below you can see my percentages of my US-only assets and see that VBR+IJS+IWN (all SCV funds) add up to 38% of US equities. Add some of the SCV found in the Total Market Index fund and SCV is an even higher percentage.
Nevertheless, the result of the 2017 SCV drag is mitigated because internationals were more than 50% of equities and SC international was 46+% of those. So my 60/40 portfolio still did better than VSMGX. Plus expenses were low and taxes were nil. Also I cannot talk about market timing here because no one would believe it anyways.

This is a very interesting summary of portfolio performance and Nedsaid Doo effects. Has this changed your planing for your future portfolio planning? Are you going to shift to a more "3 fund index approach" to simply things a bit?

I will turn 59 1/2 early in 2019. The minimum I will do is some consolidation at that time. I am keeping old workplace savings plans as I can tap without penalty in an emergency. If I tapped into an IRA, I would have the 10% penalty unless I qualified for one of the exceptions.

The thing is, I have enjoyed the process of investing and I love to tinker. My portfolio shows the effects of that. In answer to your question, I don't plan to change my investment philosophy which is value oriented. What I might do is simplify my approach, not a three fund portfolio but simpler than what I am doing now.

I have found that my individual stocks complicate things whenever I rebalance. I have toyed with the idea of selling those stocks and buying Vanguard High Dividend in their place. Another thing that complicates things a bit is that my Brokerage IRA is so stock heavy at 85%. It is simpler to allocate all accounts the same.

Nedsaid: [...]
Hopefully, all isn't lost. People can read this and learn how to analyze their own portfolios and try to figure out what went right and what went wrong. This is a real life case study.

Indeed, I've looked at my portfolio here at year-end many different ways. Below you can see my percentages of my US-only assets and see that VBR+IJS+IWN (all SCV funds) add up to 38% of US equities. Add some of the SCV found in the Total Market Index fund and SCV is an even higher percentage.
Nevertheless, the result of the 2017 SCV drag is mitigated because internationals were more than 50% of equities and SC international was 46+% of those. So my 60/40 portfolio still did better than VSMGX. Plus expenses were low and taxes were nil. Also I cannot talk about market timing here because no one would believe it anyways.

Livesoft, I have admitted to market timing in its mildest forms but what I am trying to do is sell expensive assets and buy cheap assets. But these tactical allocation moves are pretty rare for me. I did three of them in the 2000's, two worked and one didn't. Early 2000, I sold 15% of my stocks and took that to cash before the crash. Worked. About 2005 or so, I took most all of the cash and put it into bonds. Worked. In 2007 and 2008, I got excited about Small-Value tilting and academic research and made some portfolio changes. Those Merriman guys got me all excited. Fail. Losses were a bit larger than they would have been though it looks like the tilts might have helped me rebound a bit sooner. Value has been on extended vacation since the 2008-2009 financial crisis and bear market so the tilts haven't really helped me.

Okay, now some performance numbers from my handy, dandy Excel spreadsheet. These were calculated manually with the spreadsheet. I found that adding dollars to an account during a year
causes Quicken to calculate non-sensible Growth of $10,000 numbers. I do trust Quicken on Internal Rate of Return.

Wow. Am I smarter than Bill? Note that Bill's no brainer returned 5.79% over 10 years. I guess No Brains beats Smart Money. I did 5.58%. I guess brains don't help with investment performance. I guess I have 1/2 a brain. Oh well.

If you have ($300,000.) & put that into VHDYX at 3%
dividend that would be an extra $9000. a year +
social security. Especially if you could do it in a IRA.

In my mind your coming to the point in life that your migrating
from a growth portfolio to a income portfolio. Actually a
income portfolio is very exciting.

When I think of Warren Buffett, Kevin O'Leary, Ronald Read & others,
I think of huge income dividend paying funds.
Everyone of these investors are millionaires or billionaires.
In my fund VHDYX I received dividends plus still made 16.37% this year.

Nedsaid: That is the way I was taught to invest. A key phrase I heard over and over from my various brokers was "getting paid while you wait." Brokers #1, #2, #3, and #4 worked in the same office as two Money Magazine All-Star brokers who had this philosophy. Broker #1 was a personal friend who lasted in the industry for a year. I have been with Broker #4 now for about 20 years.

By the way, Jeremy Siegel, is a believer in dividends and a famous academic. I would recommend his book "The Future for Investors." Of course, this is the minority opinion in Academia.

I do think Larry Swedroe is right, dividends don't drive returns but the underlying factors like Value for High Dividend and Quality/Profitability for Dividend Growth. To me, dividends are a secondary factor. Nevertheless, I do find myself investing in dividend stocks. I like the income.

Nedsaid: I am concerned about income in retirement as well. Likely that my portfolio won't be large enough to live off of dividends and interest, I will likely need to harvest capital gains as well. So as much as I like an income strategy, portfolio size will likely necessitate a total return strategy.

I am also thinking about annuitizing maybe 20% of my portfolio, getting those annual payments for the rest of my life. The level of interest rates then will have a lot to do with what I decide, rates are very low now and this makes for lower monthly lifetime payments.

The attractive thing about dividends is that you have a decent shot at an income stream that grows faster than inflation. A friend of mine is doing what you are suggesting, when I talked to him in 2012, he and his wife's portfolio was generating tens of thousands in annual income which they have been reinvesting. They are doing this with a 100% individual stock portfolio which is not what I recommend. The irony is that my individual stock investments yield 2.57% and they have growth potential. The Total Bond Market ETF yields 2.56% and has zero growth potential. I can see why my friend is doing what he is doing but I don't want the volatility of a 100% stock portfolio.

If you have ($300,000.) & put that into VHDYX at 3%
dividend that would be an extra $9000. a year +
social security. Especially if you could do it in a IRA.

Nedsaid: Academic investment theory would say that adjusted for factors, that returns of dividend stocks and non-dividend paying stocks would be equal. What I gain in dividends, I lose with reduced capital gains. The thing is, dividends are (mostly) reliable and steady whereas capital gains are not. Corporate Boards are adverse to cutting dividend payments but as we know, dividends can be cut.

Some dividend stocks are associated with Low Volatility, which does tend to outperform the market. These are companies with slow but consistent earnings growth coupled with strong balance sheets which tend to have higher dividend yields. My guess is that Vanguard High Dividend is loaded with these type of stocks. So you can get nice income with lower volatility and increased returns. The fly in the ointment is that you want to buy low volatility when these stocks are in the Value area of the market. In recent years, Low Vol stocks have been chased so hard that these stocks wandered into Growth territory. Pretty much, Low Vol outperforms when bought in the Value area of the market and underperforms when purchased in the Growth area of the market. In other words, Valuation matters even for Low-Volatility. Fortunately, Low Vol is in the Value area of the market about 60% of the time.

In my mind your coming to the point in life that your migrating
from a growth portfolio to a income portfolio. Actually a
income portfolio is very exciting.

Nedsaid: Well, the Low Volatility stocks could be sort of a stock/bond hybrid. Nice income, higher volatility than bonds but lower volatility than other parts of the stock market. These are still stocks but one could load up his stock portfolio with these type of stocks and get the bonus of higher income. Again, if you buy these when they are considered Value stocks, you will also likely outperform the stock market with these stocks in the future.

Of course, Dividend Growth is associated with the Profitability/Quality factor. Against strong balance sheets and consistent earnings growth but higher earnings growth than low volatility. Pretty much, with Wall Street consistency of earnings growth is the definition of quality. Yields are lower, but with Dividend Growth you have more potential of income growth.

Pretty much, what I am saying is that if you put some thought behind your dividend strategies, you can make it work. Don't just buy stocks because they pay a dividend. Look at the underlying factors of Value, Low Volatility, and Profitability/Quality.

When I think of Warren Buffett, Kevin O'Leary, Ronald Read & others,
I think of huge income dividend paying funds.
Everyone of these investors are millionaires or billionaires.
In my fund VHDYX I received dividends plus still made 16.37% this year.

This is a very interesting summary of portfolio performance and Nedsaid Doo effects. Has this changed your planing for your future portfolio planning? Are you going to shift to a more "3 fund index approach" to simply things a bit?

I will turn 59 1/2 early in 2019. The minimum I will do is some consolidation at that time. I am keeping old workplace savings plans as I can tap without penalty in an emergency. If I tapped into an IRA, I would have the 10% penalty unless I qualified for one of the exceptions.

The thing is, I have enjoyed the process of investing and I love to tinker. My portfolio shows the effects of that. In answer to your question, I don't plan to change my investment philosophy which is value oriented. What I might do is simplify my approach, not a three fund portfolio but simpler than what I am doing now.

I have found that my individual stocks complicate things whenever I rebalance. I have toyed with the idea of selling those stocks and buying Vanguard High Dividend in their place. Another thing that complicates things a bit is that my Brokerage IRA is so stock heavy at 85%. It is simpler to allocate all accounts the same.

With 3 years until retirement, Nedsaid analysis has convinced me to simplify our holdings toward a 3 fund portfolio instead of stock picking. As a long time owner of Automatic Data Processing (ADP) and Altria (MO), our individual stock portfolio has winners. Giving up on one of the 4 horseman of underperformance, I sold General Electric (GE) and Microsoft (MSFT) this year. Our individual stocks are in taxable, so we'll continue to take advantage of tax loss harvesting to simplify without incurring taxes. Nedsaid analysis has me convinced to stay the course with individual stocks instead of paying LTCG to totally simplify.

This is a very interesting summary of portfolio performance and Nedsaid Doo effects. Has this changed your planing for your future portfolio planning? Are you going to shift to a more "3 fund index approach" to simply things a bit?

I will turn 59 1/2 early in 2019. The minimum I will do is some consolidation at that time. I am keeping old workplace savings plans as I can tap without penalty in an emergency. If I tapped into an IRA, I would have the 10% penalty unless I qualified for one of the exceptions.

The thing is, I have enjoyed the process of investing and I love to tinker. My portfolio shows the effects of that. In answer to your question, I don't plan to change my investment philosophy which is value oriented. What I might do is simplify my approach, not a three fund portfolio but simpler than what I am doing now.

I have found that my individual stocks complicate things whenever I rebalance. I have toyed with the idea of selling those stocks and buying Vanguard High Dividend in their place. Another thing that complicates things a bit is that my Brokerage IRA is so stock heavy at 85%. It is simpler to allocate all accounts the same.

With 3 years until retirement, Nedsaid analysis has convinced me to simplify our holdings toward a 3 fund portfolio instead of stock picking. As a long time owner of Automatic Data Processing (ADP) and Altria (MO), our individual stock portfolio has winners. Giving up on one of the 4 horseman of underperformance, I sold General Electric (GE) and Microsoft (MSFT) this year. Our individual stocks are in taxable, so we'll continue to take advantage of tax loss harvesting to simplify without incurring taxes. Nedsaid analysis has me convinced to stay the course with individual stocks instead of paying LTCG to totally simplify.

I look forward to many more years of Nedsaid Doo anecdotes.

I have about tracked the market with individual stocks. Active funds and individual stocks are how I started investing and didn't start indexing in earnest until 1999. It is a matter of preference for me, the individual stocks have not hurt me but this is not a recommeded way to invest.

The academic research indicates that individual investors are not very good stock pickers. Their picks trail the market and even worse, when they trade what they sell does better than what is bought to replace. This is the dreaded "Nedsaid effect", I have found that incorrect sell/buy decisions are a drag on performance. Pretty much, the "Nedsaid effect" gets worse the more trading you do. My guess is that the good trades are outnumbered by the disappointing trades by a ratio of 2:1 or even 3:1. I try to buy at reasonable prices, diversify across industry groups, and have long holding periods. Even at that, sometimes I beat the market by a bit or trail it a bit. Judging from the research, I have done relatively well and consider myself fortunate. It is one of the few areas of life where laziness might be a virtue.

The thing is that you want to buy quality companies, my version of Value investing is buying quality when good companies have temporary problems or fall out of favor. Sometimes, disappointments will start to do better if you are just patient. Microsoft was a disappointment, I owned it for seven years and it pretty much treaded water. The last 3 or 4 years, things turned around and it has actually become an excellent investment. The change of CEO was the catalyst. On the other hand, GE has never failed to disappoint.

You also will have a disaster every once in a while, even good companies can blow up on you. This happened with Lucent, Nortel, and AIG. I sold Fannie Mae at a big profit before it blew up. If you pick good companies at reasonable prices: one will do great, three will do as expected, and one will disappoint. I have found that to be true over the years. I have had big winners and have had my disasters, fortunately more winners than losers.

The "Nedsaid effect" works with mutual funds too. Pretty much what happens is that things turn around after you sell in utter disgust. This is why you don't want to switch strategies with every compelling investment book that you read. People tend to switch strategies at precisely the wrong time. Better to pick a good strategy and stick with it.

The problem with individual stock portfolios are that they take maintenance. There are stocks that I held for too long, not realizing that their future prospects changed for the worst. Other stocks I sold too soon. It is a relatively easy decision to buy, a much more difficult decision to sell. Most often, I sold too soon rather than too late. When in doubt, do nothing. My holding average holding period exceeds five years. Having said all of this, you want to sell when future prospects dim and there is little hope for turnaround. In other words, you need to have a sense for when the problems are temporary and when they are permanent, not always easy to tell. How much maintenance is too much and how much is too little? Again, not easy to know. It seems that portfolios do better when left alone, that is if you bought quality.

This is the appeal with the Broad Index funds. With the US Total Stock Market Index, just over 50% of the market cap is in the top 100 companies. So you get a pretty big tilt towards the very best and the most successful US companies. I can think of many dumber ways to invest your company. Quality is baked into the good indexes like US Total Market or the S&P Indexes which include the S&P 500, the S&P 400 Mid-Cap, and the S&P 600 Small-Cap. S&P requires that companies have earnings and meet other quality measures to be in their indexes so they screen out the junk. Pretty much, the good indexes are a no-brainer investment.

Okay, let's check how my Individual Stocks fared against Vanguard Total Stock Market Index Admiral shares. Note that the yearly periods ended on December 29th. I did this to synch up with Morningstar. A few posts up, I posted that my individual stocks did 19.67% for 2017, that was a Year to Date number as of 12/29/2017. So there is a small difference.

Over 15 years, my stocks returned 10.20% and Vanguard Total Stock Market did 10.45%. So now I am trailing the broad market by 0.25% annually over the last 15 years. Over 10 years, I did 7.36% and Vanguard Total Stock Market did 8.65%. Over 5 years, I did 18.31% and Vanguard Total Stock Market did 15.94%. Over 3 years, I did 14.09% vs. 10.54% for Total Stock Market Index. One year, I did 19.15% vs. 20.63% for Total Market.

In years that international did worse the US, then my portfolio had a harder time keeping up with something like VBIAX (Vanguard Balanced) and VSMGX (LifeStrategy Moderate Growth).

In years that international did better than US, it went the other way.

If my portfolio is trailing the returns of VBIAX or VSMGX by too much at any point in the year, then I can cheat by increasing allocation to equities if equities are going up. So instead of 60/40, I might have 62/38. Or if equities are going down, then I can cheat by decreasing allocation to equities, so go to 58/42.

Or if the portfolio gets ahead of VSMGX during the year, then I can switch the allocation to match VSMGX and thus stay ahead until the end of the year.

Basically, there is no free lunch and no predicting the future. But one can react to the immediate past. That doesn't mean that the reaction is the appropriate one though.

In years that international did worse the US, then my portfolio had a harder time keeping up with something like VBIAX (Vanguard Balanced) and VSMGX (LifeStrategy Moderate Growth).

In years that international did better than US, it went the other way.

If my portfolio is trailing the returns of VBIAX or VSMGX by too much at any point in the year, then I can cheat by increasing allocation to equities if equities are going up. So instead of 60/40, I might have 62/38. Or if equities are going down, then I can cheat by decreasing allocation to equities, so go to 58/42.

Or if the portfolio gets ahead of VSMGX during the year, then I can switch the allocation to match VSMGX and thus stay ahead until the end of the year.

Basically, there is no free lunch and no predicting the future. But one can react to the immediate past. That doesn't mean that the reaction is the appropriate one though.

Livesoft, the one lesson I want investors to take away from this thread is that there are trends in the market. People often use the word cycles. Sometimes US does better than International. Sometimes International does better than the US. Value and Growth take turns outperforming each other as does Large and Small. We just don't know how markets are going to behave in the future. Also, market trends or cycles can last longer than expected. For example, I thought Value broke out of its slump in 2016 after a very good year but reverted back to underperformance in 2017. We are still in the Large Growth trend we have been in since the 2008-2009 financial crisis.

There is no optimal portfolio because the markets have a large degree of unpredictability. We do know however that there are several good investment strategies out there but that no investment strategy works all the time. The best strategies work most of the time.

Again, this thread is meant to be like an investing lab or a real life case study of a real person investing real money. Hopefully, good lessons can be learned from this. One thing that inspired me to do this was reading other posters stories and personal experiences. I have learned a lot from looking at other forum members portfolios. This type of analysis is what financial planners and financial advisors should be doing for their clients.

A good planner or advisor should calculate for you your investment results. They should run for you a Morningstar report with the Stock and Bond styleboxes so that you know what you own. They can run an efficient frontier for your portfolio to see if you are getting good returns in comparison with what the risks you are taking. A planner or advisor should have a reasonable basis for projecting future returns, many use raw historical returns others like Bill Bernstein will take valuations into account when projecting future expected returns. Advisors can also run a Monte Carlo analysis exposing your portfolio to many scenarios to come up with an estimate of how likely your portfolio will not exhaust itself in retirement. They can give you an idea if you are too conservatively invested or too aggressively invested. If your advisor requires an Investment Policy Statement, that is a very good sign. Taking all of this into consideration, a planner or advisor should give you a good portfolio model to follow. No guarantees of course but educated guesses are a lot better than uninformed choices.

So pretty much, if you don't have a planner or advisor to do portfolio analysis for you, you really need to do some of this yourself. What I am trying to show is how you can do this for yourself.

When I started to study investing I watched all of Kevin O'Leary
videos on investing (He is a dividend investor).

He said a couple of things that I thought were pretty interesting.
1). With dividend paying stocks they pay you to sit in the weeds & wait.
2). Once you have acquired your stocks their is no cost (ER cost) to holding them.
3). With mutual funds they always charge you a ER for just holding it.

I like mutual funds better than individual stocks. However, their are exceptions.
When you were comparing your stocks to TSM you forgot that you were getting
dividends that you could reinvest (cash). I really like your stocks. I would think
twice before you sold them. Worse case scenario is you sit back & collect dividends.

I personally would be looking very hard at high ER funds. Are they achieving
what you want?

When I started to study investing I watched all of Kevin O'Leary
videos on investing (He is a dividend investor).

He said a couple of things that I thought were pretty interesting.
1). With dividend paying stocks they pay you to sit in the weeds & wait.
2). Once you have acquired your stocks their is no cost (ER cost) to holding them.
3). With mutual funds they always charge you a ER for just holding it.

I like mutual funds better than individual stocks. However, their are exceptions.
When you were comparing your stocks to TSM you forgot that you were getting
dividends that you could reinvest (cash). I really like your stocks. I would think
twice before you sold them. Worse case scenario is you sit back & collect dividends.
Nedsaid: My returns for my stocks do include dividends. The report treats them like stock
sales, which from a theoretical point of view is correct. A dividend in theory is a partial liquidation of the principal. So I think Quicken is doing a pretty good job tracking this.

What I would recommend is to look at the Factors involved. It seems like High Dividend/Low Volatility/Dividend Growth would be a potent dividend strategy. Check valuations. I still believe that pursuit of a dividend strategy now runs into the headwinds of high valuations and popularity. Timing is not the best right now.

I personally would be looking very hard at high ER funds. Are they achieving
what you want?
Nedsaid: I have been working down my expense ratios over the years. What you are mostly referring to are my American Century Funds which are in four groups: Earnings/Price Momentum, Value, Quantitative (optimized indexing), and Fixed Income. They are good fixed income investors and this has not been a problem. Their Value and Quant funds were the problem. REIT funds were a drag too. Per the analysis above, the American Century Funds drag on portfolio performance was small. American Century was responsible for only 6.3% of my underperformance. Disappointing but not fatal to performance. Fee drag here but no factor drag as Earnings Price Momentum more than cancelled out factor drag from Value and performance drag from the Quantitative funds and REITs.

The problem came mostly from my Brokerage Account IRA, the so-called factor drag. Lots of Small-Cap and Value here. Both factors trailed the broad market and this effect caused the bulk of my underperformance. I calculated that 77% of my underperformance came from the Brokerage IRA and most all of that was from factor drag. My Small-Cap and Value investments underperformed the market. The REIT index trailed the US Total Market Index but my Timber REIT did well, almost matching Total Market.

What was weird was that the former workplace savings plan where I had low expenses of 0.22% and where I did everything right was responsible for 16.4% of my underperformance. Most of the underperformance was from a GNMA fund and a TIPS fund that both performed below Total Market. I have a slight Small-Cap tilt and small fee drag. Have a REIT fund in here too and this fund did 3.58% in 2017 far below the 21.15% performance by Total Stock Market Index.

In answer to your question, I got my money's worth from American Century's Earnings/Price momentum funds. I did not get my money's worth from their large Value fund and their Quantitative Funds. Fixed income did fine.

Last edited by nedsaid on Mon Jan 01, 2018 6:14 pm, edited 1 time in total.

This project took quite a bit of my weekend but the time was worth it. I enjoyed the responses I got from other Bogleheads. It was sort of a post mortem on my 2017 portfolio performance. I did a lot of editing because I kept rechecking my math and made corrections.

Mostly, it was factor drag because Small and Value underperformed in 2017 relative to the US Total Stock Market Index. There was fee drag in there too. There was REIT drag, TIPS drag, GNMA drag, and drag from a Cash Balance Pension whose guaranteed interest for 2017 was less than the return from US Total Bond Market.

I could come up with a more complex "blended" index that would include US Total Stock Market, Total International Stock Market, US Total Bond Index, REIT Index, Vanguard GNMA, and TIPS Index. That would have made things look a bit better for me but I wanted to keep my blended index relatively simple.

In summary, lets evaluate my various tilts with a Success or Fail Score.

Someone (sorry, can't remember who) has a saying on the bottom
of their screen that say's "you simply do not need 8 funds in your portfolio".
I love that saying...

Having said that, you know what would be perfect for you?
Ready, Set, Go...

The Vanguard High Dividend Yield Index Fund & The Total Bond Market Index Fund.
2 Funds is all you need. Two great income funds. Anything more than that
you simply do not need!

Like the movie "Toy Soldiers"...Everything else is just a toy.
Basically your designing your own Wellington Fund but you
can set & change your own AA at anytime. Not to mention
huge income... Let's list all the benefits of this portfolio.

1). Very simple (couldn't get much simpler).
2). Very low ER cost. (.15 + .05 = .2 total ER).
3). The ability to change your AA at anytime.
4). Very high income producing portfolio (long term qualified dividends, no capital gains).
5). Good potential for better growth.
6). It's a lower risk portfolio (large blue cap stocks & great bonds).
7). ***Best of all... it would really help your retirement***.
8). This is my plan over time...just add the Total Bond Market Index Fund.
8). Easy-Peasy...couldn't be easier...your welcome...

Someone (sorry, can't remember who) has a saying on the bottom
of their screen that say's "you simply do not need 8 funds in your portfolio".
I love that saying...

Having said that, you know what would be perfect for you?
Ready, Set, Go...

The Vanguard High Dividend Yield Index Fund & The Total Bond Market Index Fund.
2 Funds is all you need. Two great income funds. Anything more than that
you simply do not need!

Like the movie "Toy Soldiers"...Everything else is just a toy.
Basically your designing your own Wellington Fund but you
can set & change your own AA at anytime. Not to mention
huge income... Let's list all the benefits of this portfolio.

1). Very simple (couldn't get much simpler).
2). Very low ER cost. (.15 + .05 = .2 total ER).
3). The ability to change your AA at anytime.
4). Very high income producing portfolio (long term qualified dividends, no capital gains).
5). Good potential for better growth.
6). It's a lower risk portfolio (large blue cap stocks & great bonds).
7). ***Best of all... it would really help your retirement***.
8). This is my plan over time...just add the Total Bond Market Index Fund.
8). Easy-Peasy...couldn't be easier...your welcome...

A good two fund portfolio would be a US Bond Index coupled with an All-World Stock Index. I have such account and have been pleased with how it has performed. It is a workplace savings account that I will likely consolidate after I turn age 59 1/2. Still mulling over my options.

I also want an International portfolio. About 29% of my stocks and 7% of my bonds are International. I would like to increase my International commitment.

What I would like is a discussion of portfolio analysis. Here are some relevant topics:

1) Analytical tools available at Morningstar or other websites. Lots of folks use Portfolio Visualizer.
2) Relative performance of asset classes over time.
3) Performance of factor tilted portfolios vs. Taylor Larimore 3 fund portfolio.
4) Investment Policy Statement.
5) Discussion of the elements of portfolio return. For example, I underperformed my blended index and put most of the blame to "factor drag".
6) Relative success of different investment strategies.
7) Effect of tactical asset allocation upon returns.
8) De-Risking a Portfolio as one ages.
9) Benchmarking your portfolio vs blended index, Target Date Retirement Fund, or a LifeStrategy Fund.
10) How to create a blended index using Morningstar and performance of live index funds.
11) How to calculate return. Growth of 10,000. Internal Rate of Return. Compound annual rates of return. This is important as there are some of us who remember the Beardstown Ladies. They published a book on their investment returns and the great returns they generated. Book sold great until a financial journalist noticed they made an error in calculating their returns. Instead of beating the S&P 500, it turned out they trailed the benchmark.
12) What specialized tools does an investor use to calculate return? Triceratop mentioned a spreadsheet that he uses to calculate IRR. I use Quicken. I found Quicken has problems with Growth of $10,000 if you add cash to an account. Quicken does a great job calculating IRR.
13) What went right and what went wrong in your own portfolio.
14) Future expected returns versus historical returns for asset classes.
15) How well have I actually stuck to my investment philosophy and my Investment Policy Statement?
16) Complexity vs. Simplicity.

There are other topics of course. What I am attempting here is not only to track my own progress and to clarify my own thoughts by putting them in writing and posting but also providing a learning experience for others. The hope is that investors can learn to do much of this on their own, minimizing the need for investment advisors. If you still need the services of the advisor, you will be able to ask better questions and perhaps save time and money in the planning process.

12) What specialized tools does an investor use to calculate return? Triceratop mentioned a spreadsheet that he uses to calculate IRR. I use Quicken. I found Quicken has problems with Growth of $10,000 if you add cash to an account. Quicken does a great job calculating IRR.

I am interested in how you can possibly calculate IRR for a total portfolio which consists of individual stocks, 401k, Roth IRA, taxable, crypto, etc. all being bought at different times with different fees.

And then I’d also want to account for inflation because I’m interested in real return.

Maybe when I’m retired in 40 years I will have enough time to devote to such a project and find out how I did

The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

12) What specialized tools does an investor use to calculate return? Triceratop mentioned a spreadsheet that he uses to calculate IRR. I use Quicken. I found Quicken has problems with Growth of $10,000 if you add cash to an account. Quicken does a great job calculating IRR.

I am interested in how you can possibly calculate IRR for a total portfolio which consists of individual stocks, 401k, Roth IRA, taxable, crypto, etc. all being bought at different times with different fees.

And then I’d also want to account for inflation because I’m interested in real return.

Maybe when I’m retired in 40 years I will have enough time to devote to such a project and find out how I did

I used Quicken to calculate IRR. I can pick accounts and/or particular securities. No secret here, just knowing how to work with Quicken's reports. Didn't realize I could do all of this until recently. That is how I calculate the IRR for my individual stocks.

I had to calculate Growth of $10,000 manually with an Excel spreadsheet. If you add money to an account, Quicken juices the Growth of $10,000 numbers to the point where the numbers didn't make sense. I was interested in Growth of $10,000 because once you have that, online calculators make calculating Compound Annual Growth Rate (CAGR) very easy.

12) What specialized tools does an investor use to calculate return? Triceratop mentioned a spreadsheet that he uses to calculate IRR. I use Quicken. I found Quicken has problems with Growth of $10,000 if you add cash to an account. Quicken does a great job calculating IRR.

I am interested in how you can possibly calculate IRR for a total portfolio which consists of individual stocks, 401k, Roth IRA, taxable, crypto, etc. all being bought at different times with different fees.

And then I’d also want to account for inflation because I’m interested in real return.

Maybe when I’m retired in 40 years I will have enough time to devote to such a project and find out how I did

There is a more detailed sheet in the spreadsheet that shows those trailing return figures as of any previous month.

It is not exact as account flows are entered with monthly granularity so there is a bit of averaging going on. But if I recall correctly, the XIRR numbers are not usually precisely accurate anyway because one has to solve a nonlinear equation approximately for the solution.

"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

12) What specialized tools does an investor use to calculate return? Triceratop mentioned a spreadsheet that he uses to calculate IRR. I use Quicken. I found Quicken has problems with Growth of $10,000 if you add cash to an account. Quicken does a great job calculating IRR.

I am interested in how you can possibly calculate IRR for a total portfolio which consists of individual stocks, 401k, Roth IRA, taxable, crypto, etc. all being bought at different times with different fees.

And then I’d also want to account for inflation because I’m interested in real return.

Maybe when I’m retired in 40 years I will have enough time to devote to such a project and find out how I did

There is a more detailed sheet in the spreadsheet that shows those trailing return figures as of any previous month.

It is not exact as account flows are entered with monthly granularity so there is a bit of averaging going on. But if I recall correctly, the XIRR numbers are never accurate anyway because one has to solve a nonlinear equation approximately for the solution.

Triceratop to the rescue. Thank you for supplying the link. This spreadsheet is probably more sophisticated than what I had been doing.

What I did was to calculate my returns twice.

The first time, I would assume that I made all of my contributions at the beginning of the year. So I would take my beginning balance and add to it all of my contributions, my ending balance would be the numerator being divided by the sum of beginning balance plus contributions (denominator). You take the result and subtract one.

The second time, I would assume that I made all my contributions at the end of the year. Thus I would take my ending balance and subtract from it all of my contributions I made throughout the year. My ending balance minus contributions would be the numerator being divided by my beginning balance which would be the denominator. Take the result and subtract one.

Take the first result and add it to the second result and divide by two. That gives you a rough approximation of Internal Rate of Return. This works okay if your contributions are paycheck by paycheck 401(k) or other workplace savings plan, the assumption being that contributions are made evenly during the year.

So let's say that I start with $10,000 account balance and made $2,000 of contributions evenly during the year and had an ending account balance of $15,000.

First, I assume all my contributions were made at the first of the year.
$15,000/($10,000+$2,000) = 1.25 Take 1.25 minus 1 to get 25.00% return.

Second, I assume all my contributions were made at the end of the year.
($15,000-$2,000)/$10,000 = 1.3 Take 1.3 minus 1 to get 30.00% return.

0.30 + 0.25 = 0.55 Take 0.55/2 = 0.275 or 27.5% return.

Haven't looked at the Spreadsheet Triceratop linked to, the assumptions behind it are probably more complex. I use a method that is "close enough".

In another post, I might share how I calculated the Growth of $10,000. Hint: Once I had my yearly Internal Rate of Return numbers year by year this was relatively easy. Probably not hard to figure out what I did.

Seeing we are 1/2 way through 2018 and that I will be turning age 59 tomorrow, I thought it would be a good time to update my investment performance.

As you all know, I have a portfolio of 18 individual stocks as a subset of my retirement portfolio. Let's see how they have performed over the last 15 years. Let's then benchmark my performance and see how I have done.

Hey Snarlyjack, thanks for the Birthday wishes. I turn 59 tomorrow and can lament my lost youth. Still there should be some great years ahead.

My portfolio does not generate enough interest and dividends to live on, even with Social Security. So as much as I like the income approach, I will need to harvest capital gains in retirement. Also thinking about annuitizing about 20% of my portfolio upon retirement. As Bobcat2 famously says, it is generating the income to maintain your lifestyle in retirement that counts and not so much "the number" or portfolio size.

Then go from their...start tweaking.
Get a really good handle on things before you start!
Know exactly what your doing & why.
Maybe some other Bogleheads would have some
other really good suggestions...

I agree with Bobcat2. In retirement it's all
about the income generated. The portfolio
will ebb & flow in value.

What would happen if you converted the whole
portfolio to a income portfolio? Would that
kick up the numbers high enough?

Most of your funds & stocks are dividend/
income producing assets. The tweak could
be fairly minor?

(My portfolio is throwing off about $10,000 a year
in dividends. But I built a income portfolio to fire with).
A 1 Million dollar portfolio could kick off $30,000.

Well, I want to give detail about the portfolio without revealing
its size. My guess is that I get probably about 2% yield from the
portfolio, maybe a bit more. So I need 2% income and 2% capital
gains, looking at 4% withdrawal rate.

To get the 4% withdrawal all from dividends and interest would be
more than a mild portfolio tweak.

If I annuitize a portion at age 65, my effective withdrawal rate
from that portion of the portfolio would be about 6%. I am thinking
about 20% of the portfolio. But retirement is a ways off and my
thinking might be different then. Circumstances change.

Then go from their...start tweaking.
Get a really good handle on things before you start!
Know exactly what your doing & why.
Maybe some other Bogleheads would have some
other really good suggestions...

As far as Social Security, I don't have recent projections. My
best guess is that 4% portfolio withdrawal rate plus Social Security
should about do it. Also have another small pension I will be
able to draw from.

I used the Morningstar X-Ray Stock Intersection tool on my portfolio. You can see the
company name, ticker, and percentage of my retirement portfolio for each stock. Not
much change from last time I did this analysis. The stocks individually held are bolded. You
can see that I am not heavy on the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google).